The Investment Column: FI Group is small but agile

MANY SERVICE companies have benefited from the ongoing popularity of outsourcing and FI Group is no exception.

But according to FI, the outsourcing trend has reached new extremes. The group's customers expect it to take on an ever wider range of formerly in-house activities. Recent contracts include the restructuring of companies - a task traditionally tackled by the companies' own management.

But despite the growth of the business, at 320p FI's shares are the same price they were a year ago. In the meantime they fell to 202.5p as fears of global economic meltdown hit the sector and FI issued shares. Profit- taking has recently knocked a subsequent recovery to 372.5p. Was the profit- taking too hasty?

FI's business is based mainly in the UK, but it also has operations in the US, the Benelux countries and India. The British side of the business is strong enough to cope with the greater complexity and volume of business. The problem is acquiring skills overseas in the new activities, which range from "change management" to e-commerce solutions.

Hilary Cropper, the chief executive, thinks FI has potential as a global services business rather than the niche IT outsourcing player which it began life as. She is eyeing up acquisitions in northern Europe and the East Coast of the US.

FI will face some tough competition. In e-commerce, which grew from nothing to 5 per cent of FI's sales last year, there's IBM to contend with. In other services, Cap Gemini has a stranglehold. Ms Cropper says that what differentiates FI from the big players is its flexibility. The competition, fixated on pure outsourcing, would not have created the joint venture that FI hatched with the Bank of Scotland. Such agility helped lift underlying sales 23 per cent and overall turnover 32 per cent last year.

Analysts expect pre-tax profits of pounds 26.3m and earnings of 8p a share this year, rising to pounds 34.1m and 10.3p in 2001. The shares, 40 per cent of which are held by FI employees, are not cheap on 40-times earnings, but FI's solidity and earnings record make them a strong hold.